E129 | In Conversation With The Lean Startup Legend, Steve Blank
Today’s guest needs no introduction. Essentially, if you run a startup and you haven’t heard of Steve Blank, can you even call yourself an entrepreneur?
Steve is the ultimate serial entrepreneur, retiring in 1999 with eight high technology startups under his belt. He coined the term ‘customer development’, codifying what that was in the inaugural start up book, The Four Steps to the Epiphany – the start up book that kickstarted the lean startup revolution.
He then went on to teach a course at Stanford based on what he had codified around startups and what makes the successful ones successful. And one of the guys on his course was a chap called Eric Ries, who you might have heard of for writing a book called The Lean Startup.
Then he found himself on the front cover of Harvard Business Review and his book and that, as they say, is history. Steve went on to change the way the world thinks about startups.
This is truly a fascinating conversation, we talk about what the job of the CEO is, what customer development is, why innovation is so hard and why established businesses hit a plateau.
On today’s podcast:
- The Lean Startup
- Eric Ries & Alex Osterwalder
- The difference between search and execution
- The personality of a founder
- The job of a CEO
- Executioners and innovators
The Importance of Executioners and Innovators with Steve Blank
Steve Blank is a retired serial entrepreneur, the creator of the Lean Startup methodology, he teaches at Stanford, he’s the author of the Lean Launchpad class at National Science Foundation’s icore and co-creator of Hacking for Defense, a series of classes he teaches at Stanford.
Steve, Eric Ries and Alex Osterwalder are credited for kickstarting the Lean Startup revolution.
“I had been a serious entrepreneur for 21 years, which is a fancy word for saying, I did startups until they were either crated or succeeded.”
The insight he gained from his 21 year stint as an entrepreneur gave him the insight of customer development.
“And the insight, which became something called customer development was pretty simple. Insight was there are no facts inside your building, so get the hell outside. And that was one of the key differences between winners and losers.”
Let’s go back to the beginning.
Execution and search
“It’s important to remember, by the last part of the 20th century, business schools had been around since the beginning of the early 1900s.”
Steve knew that there were a slew of great tools for organising large corporations, teaching them how to do strategy, how to do all the stuff they needed to do, and that startups were thought of as smaller versions of big companies, started by people from their garage. And if they’re good enough, by magic, they turn into a big company.
No one was making explicit tools for startups. No one was paying them any attention. Here came Steve’s big idea:
“No one had noticed that large companies execute business models, but startups search for them.”
No one had ever voiced this distinction between search and execution before, says Steve. It was his aha moment.
“These are very different things. We have tonnes of tools for execution. But we have no tools, or very few that were actually modelled for search.”
The Lean Startup
And so he wrote The Four Steps To The Epiphany which invented a method of getting out of the building and going to talk to your potential customers about what they actually want, before you start building things, rather than at the end, when you ship the product.
“There’s no way that you’re smarter than the collective intelligence of your potential customers, as you’re sitting inside your building. So why don’t you get the heck out and talk to those people?”
He postulated that if you did this, you’d be able to change what you’re building based on what you’re learning – a feedback circle that Eric Ries later termed ‘the pivot’. Steve also suggested building a minimum feature set to start with, again, something Eric later termed ‘the minimum one viable product’. And with that, the lean startup was born.
The hardest part about a lean startup, says Steve, is fighting your own instincts. When you’re a founder, you’re convinced of what you’re doing, you have to be a true believer to be a visionary.
“But the only way you’ll do lean is if you actually accept the fact that 99% of visionaries are hallucinating.”
So you have to be able to counter your instincts. You have to be able to listen to the voice in the back of your head that says ‘what if I’m wrong’, and find a way to prove you’re right.
The advantage of the dysfunctional family
Steve says one of the similarities of founders of unicorns is they’re a product of a dysfunctional family. But this is one of their strengths, not a weakness.
“After you go through the names of founders of unicorns and larger in terms of startups, and you read about their parents and upbringing. You go, wow, this is a list of damaged people.”
It turns out, says Steve, that as a unicorn company scales, these founders tend to throw in hand grenades to keep the dysfunction going. Because they’re uncomfortable with the routine day to day growth. They need innovation to keep the excitement alive.
The personality of a founder
Founders have their heads screwed on differently, says Steve. They see things that other people don’t see.
“Founders are closer to artists than any other profession. And I’ve said it before. Those founders are not accountants, accountants don’t create disruptive startups. And this is not a diss on accountants, it’s just the mindsets of artists.”
Of course not everything they touch turns to gold, most of what artists churn out isn’t brilliant, but they don’t give up, that’s the mindset of an artist, they’re driven by their creativity, they drag themselves out of bed and do it all over again.
“And by the way, most of them never have a hit, or sell a famous painting, or make a play that makes it onto Broadway. But they do it because there’s something inside of them that forces them to create constantly against all odds. And most of them really don’t care about the money. They care about the act of creation. I just described what a founder looks like.”
How to be a good CEO
“Whether you’re a startup or whether you’re a business at scale, you still need to innovate. And it doesn’t matter where you are, whether you’re at the beginning, or whether you’re partway through the journey, you still need to say, who’s our customer? What problem are we solving? Why are we relevant?”
When a company scales, the CEO needs to be in touch with two things:
- They need to be able to talk to customers
- And they need to be able to demo their own product
You have to be in contact with your customers, you have to know what’s going on with them first hand, to get sampling first hand, regularly.
The problem as companies scale is that the CEO loses touch with what makes the company special. And it’s staying in touch that means when you need to pivot, or change or do something that’s not instinctual to the rest of your company, you can.
“What happens is companies as they grow they go from teams dedicated to searching for business models, to now stratifying into organisations that are built to execute business models. And the people you hire for execution are very different from the people you hire for search. The people you hire for execution are there for a job.”
The ambidextrous organisation
As companies get larger, they need to learn how to chew gum and walk, says Steve. They have to be able to execute and innovate continuously.
“Obviously, execution is the core. I have a phrase that execution pays your salary, but innovation will pay your pension. And if you don’t have both of them going on simultaneously, you’re going to be a one mode company and go through that historic great burst of energy, etc, and then eventually decline as the market or customers or technology changes around you, and you don’t adapt.”
You have to build an organisation that is ambidextrous. That doesn’t fight with itself. It has one side that executes day to day stuff, they fight the short term fires, and they have an innovation side that looks into the future, at the long term.
But the problem is that innovation is hard. In the US at least, corporations are driven by stock prices and incentives are all about short term gain. Which is why innovation is difficult, because to innovate effectively you have to have your eye on the long term prize.
“If you’re Tesla, your goal is to move people off internal combustion engines onto electric vehicles, you have different goals than short term profits, even though you will return them and eventually will become the world’s most valuable automotive company. But you have a different eye on the prize, your eye on the prize is not the next quarter.”
It’s like, says Steve, going into Michelangelo’s studio and seeing a block of marble and him saying to you, ‘give me $7 million dollars and come back in a few years.’
The visionaries see the finished sculpture, they have to persuade investors, employees, etc that their investment is worthwhile.
But a good many of them are wrong.
“You know, most startups fail. Most companies don’t last more than 15 years, the average lifetime of a corporation in the United States has gone from 50 years to 15 years.”